Shailendra Kumar, Chief Investment Officer at Narnolia Financial Advisors, said the sectors that were badly hit due to COVID like airlines, hotels, amusement parks, real estate are good spaces to do some bargain hunting.
According to him, the Sensex may consolidate in the broad range of 45,000-55,000 for the remainder of 2021.
Q: With cases finally on a decline, which sectors can one focus on?
The market had not shown any big crack on the account of COVID second wave. Nifty peak to trough fall during March-April was about 9 percent and it was slow and a gradual correction. So in that sense, a large spurt in the market when the cases are coming down does not look like a high probability scenario. But some change in strategy surely looks needed. Some of the sectors that were badly hit due to COVID like airlines, hotels, amusement parks, real estate are good spaces to do some bargain hunting at this point in time.
Q: Can Sensex climb to 55,000 in 2021?
To me, the market looks to have entered into a sideways consolidation zone or would be entering a sideways zone shortly. The Sensex may consolidate in the broad range of 45,000-55,000 for the remaining months of the calendar year 2021.
We need to understand that at the current level, the market is not only factoring a high earnings growth but is also riding on the expectations of major policy steps like BPCL, Air India divestment, IPO of LIC, etc. So the next leg of the market will depend on how the government policies play out in the second half of the fiscal year. And till then the market may remain in a wait and watch mode.
Q: Mutual Fund inflow in equities declined in April compared to March. Do you think there could be strong MF inflow going forward?
The recent decline in MF flows is largely due to lots of new investors preferring the direct equity investing route over mutual funds. But in a structural sense, there is a large room for the MF industry to grow in India. Aggregate mutual fund corpus in India is just one-fourth of the aggregate bank deposits and such a big difference cannot exist over the long term particularly in a low-interest rate environment. Once the next round of fall in interest rate starts, the pace of investing through mutual funds will get a large flip.
Q: With the expected easing in lockdown, do you expect double-digit economic growth in FY22?
Before COVID wave-2, Indian GDP was expected to grow by 12.5-13 percent during the current financial year. But now we have seen a lockdown-type situation in large parts of the county for the last fifty days. More importantly, consumer sentiment appears to have taken a big hit this time, so there would be about a 200 bps downgrade in the growth estimates. Though, some positivity may come in the second half of the financial year if the government increases its spending. But net double-digit growth looks quite certain for FY22.
Q: Should the market be worried about risks of inflation, interest rate hikes, bond yields and the US dollar now?
The Source of inflation both, domestically and globally, right now is mostly on the account of supply disruption and other supply-related issues. As it is not demand-driven higher inflation, I believe this inflationary pressure will ease once we are in a relatively stable post-COVID world. In terms of currency, some small gradual depreciation may happen in the near term, but continued high foreign exchange reserves with RBI will ensure orderly movement. The 10-year bond yield looks set to move in the range of 6.0-6.5 percent for the next 2-3 quarters. Also, in terms of spread both for AAA bonds and BBB bonds credit spread has softened implying a low probability of companies’ default going forward. So, collateral damage to the equity market due to some disturbances in other financial markets looks low probability case as of now.
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